Islamic Apex Institution for Microfinance and Sustainability

Abstract

The purpose of this paper is to examine an apex institution of microfinance operating according to Sharia-compliant practices and its performance. After giving the background of the microfinance crisis, we provide evidence of the need for a more responsible microfinance industry. Thereafter, we examine the state of Islamic microfinance around the world and in the Arab world and focus on two existing apex institutions for microfinance: a conventional one – Social Fund for Development (SFD) in Yemen and an Islamic one – Sudan Microfinance Development Facility (SMDF). We conduct a comparison based on outreach to final beneficiaries and total outstanding loan portfolio. The outcome of our assessment, restricted to limited data, shows that SMDF performs better than SFD suggesting that Islamic microfinance apex institutions have potentially a greater impact. We conclude by saying that Islamic finance industry practitioners should make efforts towards developing the microfinance space, as microfinance clients, as they become bankable, will form the basis of loyal depositors to mainstream Islamic financial institutions.

Keywords: Microfinance, Islamic microfinance, responsible finance, apex funds